Is Amazon.com destined to start charging sales tax?

On Monday, Texas Gov. Rick Perry exercised his first veto on bills produced by the 2011 Texas Legislature, killing a bill that would have required online-only merchants to collect sales taxes. Had the bill succeeded, the pricing advantage enjoyed by Amazon.com would have been diminished, along with the happy savings enjoyed by Amazon’s enthusiastic customers.

There’s a growing sense among state and federal lawmakers that the online sales-tax reprieve, once meant to support and nurture a fledgling industry, constitutes an advantage that Amazon, with 90 million customers and $34 billion in annual sales, no longer needs. Over the past year an escalating war over online sales taxes has spread to Texas, Connecticut, California, and dozens of other states. Later this month the battle will reach Capitol Hill. Senate Majority Whip Dick Durbin (D-Ill.) says he plans to introduce a bill, called the Main Street Fairness Act, mandating that all businesses collect the sales tax in the state where the consumer resides.

Such measures have been proposed and disregarded by Congress for years, but Durbin believes the winds are shifting. “This idea is overdue,” he says. “Online retail sales are now very fulsome and are growing at the expense of local units of government.” Many state budgets are bleeding red, despite some recent revenue upswings around the country, and Internet sales-tax revenue has the gleam of found money. In many states, customers are supposed to declare their online purchases on their income tax forms but rarely do. A University of Tennessee study recently estimated that states will collectively lose $10.1 billion in uncollected online sales-tax revenue this year and $11.3 billion next year.

The federal ban has been in place from the earliest days of e-commerce, when lawmakers sought to give a boost to a nascent industry. Now that online shopping is commonplace – indeed, the primary way many people buy goods now – such protections give Net-based merchants an unfair advantage, their critics claim. And, of course, those “critics” are usually retailers with substantial brick-and-mortar operations, or local merchants who lack the resources and reach to compete online.

Bloomberg writer Brad Stone notes that removing the ban may not be a bad thing for Amazon. The company has threatened to pull its distribution centers in states that have tried to collect sales taxes in those places, but if the ban was lifted, Amazon couldn’t use those facilities as a club. On the other hand, Amazon could build distribution centers wherever it wanted, and wouldn’t have to locate them so selectively.

Stone also points out that, even if sales taxes are applied to Amazon purchases, the online retailer still enjoys a price advantage over its big-box competitors:

Actually, being forced to collect sales tax may not turn out to be so bad for Amazon. Analysts at Wells Fargo Securities (WFC) recently surveyed a range of products and found that even without factoring in sales tax, Amazon’s prices were, on average, 5 to 6 percent lower than Wal-Mart’s and 12 to 13 percent below Target’s.

How much of your shopping is online?

Almost all of it (37%, 178 Votes)

Half of it (29%, 139 Votes)

Some (25%, 118 Votes)

Very little (9%, 42 Votes)

Total Voters: 477

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Still, purchases from Amazon would end up costing buyers more. For example, when I bought my Samsung HDTV through Amazon, I avoided almost $77 in sales taxes. In our household, we do almost all our Christmas shopping via Amazon and other online merchants, largely because of the sales tax savings. I suspect a lot of online buyers are similarly motivated.

Stone writes that the federal proposal faces an uphill battle, largely because Republicans in Congress feel repealing the ban would be perceived as levying new taxes. But I also think lawmakers would get an earful from online shoppers who realize just how much more they’d have to fork out if the ban is repealed. And publicity-savvy operations like Amazon could easily mount a “complain to your legislators” campaign via their sites and social media that would hammer the message home.